For a day trader who has a winning trading system and the right approach to trading, trading futures or forex instead of stocks can be a very wise choice and much more lucrative than trading stocks only. The primary attraction of trading forex or futures is because of the potential to make very large profits in a very short amount of time. The secondary attraction to the forex or futures markets and why they can be so profitable is leverage.
For example if you had $5000 in a futures trading account you could trade one S&P 500 stock index contract very easily. To buy say $1000 of each of the 500 stocks in the S&P 500 stock index you will need to cough up $500,000 on an average. So if you thought the market was going to go up you would buy one S&P 500 contract rather than all the 500 stocks in it. So in a move where you make $5000 when you buy all the stocks you have made a 1% gain, whereas if you made the same $5000 with one contract on a $5000 account you made a 100% return in the same amount of time.
But the same logic can work against a trade in the same way too. A trader can lose 1% or a 100% real quick too. That is why it is extremely important to use stops while trading forex or futures and get out as soon as you sense that the position is going against you using logical places to get stopped out. It is also very costly to make 500 trades on each individual stock in the index even if it might be around $8 per trade. With a single futures contract the commissions can be around $5 for a round turn.
Even though you can make a lot of money trading futures, it is not always easy to be right all the time. No one can be consistently profitable all the time. Another advantage in futures or forex accounts is that you can use your unrealized profits within the account to get more leveraged. In a stock trading account you need to have the money in the form of cash to open a position and cannot use open profits to do so.
Another point to remember is that in the stock trading universe you have 10,000+ stocks to choose from whereas in the forex or futures markets you only have to choose from thirty or so very liquid contracts in different segments of the economy that you wish to trade. You can trade just one or two if you so wish. It is also very easy to go short trading futures as there is no uptick rule requirement as in stocks. There is always a profitable opportunity available to those who trade commodities in a up, down or sideways market. And last but not the least advantage of futures over forex is their taxable status. Futures are taxed at sixty percent long term and forty percent short term capital gains. Capital gains on stocks are taxed at the ordinary income level and might be as high as around thirty five percent for some individuals.
Because of all the reasons outlined above, it is a very simple choice that a trader has to make when choosing whether to trade futures or stocks.
Please visit http://www.invictatrader.com to learn more about the Watts Trading System from Ryan Watts of the Watts Trading Group and how it can be used to profitably swing or day trade stocks, futures, forex or any other liquid market and any time frame. It is the only system out there that we believe offers a lot to traders who want to succeed at trading for such a low price.
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